Health insurance costs are growing faster than inflation

With a 3.25% increase, we project the average cost of a single-person top hospital
policy will increase from $2542 to about $2625 before the rebate is applied. With
couples and family policies typically costing twice as much, a family might
find themselves spending around $165 a year more on hospital cover.

While the premium increase is low compared to inflation in the healthcare industry, this year's price hike will be 72% higher than rate of general inflation, raising concerns that private health
insurance is being priced out of the reach of many Australians.

"This latest increase will mean Australians with private health cover have been hit by a 66% cumulative price hike since 2009, forcing many to downgrade or drop their private health insurance," says CHOICE spokesperson Jonathan Brown.

"Notwithstanding the barrage of fear-laden advertising from health insurers and for-profit switching sites, private cover is unaffordable and often unnecessary for many people."

Premiums have increased by 66% in the last decade, while the consumer price index (CPI) grew only 22%.

Rebate cuts mean you'll pay even more

Compounding the price pressure is a simultaneous cut to the
government's private health insurance rebate. The rebate amount goes down
if the average premium increase is greater than CPI growth – which it is
every year. The rebate amount for under 65s earning less than $90,000 (or
$180,000 as a couple) will reduce from 25.4% to 25.1% on April 1.

With premium increases at one end and a rebate cut at the other, the cost
of the average policy will actually increase by 3.7%. When the annual cuts
to the rebate are factored in, the real cost of health insurance has grown 78% in the last decade.

Changes are coming on 1 April

Gold, Silver, Bronze, Basic

2019 will see new types of health insurance policies on the market, with each product put into one of four tiers: Gold, Silver, Bronze or Basic. The thousands of treatments you can get in a hospital have been put into 38 categories, allowing insurers to mix and match a baffling array of possible cover combinations. For example, chemotherapy is its own category, and is covered under Bronze, Silver and Gold policies. However, whether or not you are covered for surgery to have a cancer removed depends on where the cancer is: surgery to remove lung cancer is only covered by default under Silver and Gold policies. Pay attention to anything your health fund sends in you the next few months, in case your cover drops.

Discounts for young people

People in their twenties are the most under-represented age group in private health insurance. They also claim the least, meaning their premiums subsidise the healthcare costs of older members. Health funds are keen to sign people up young, and they will now be allowed to offer discounts to under 30s. People under 25 can get a 10% premium discount, decreasing by 2% for every year over 25 when you first join. Stay with the same policy and the discount will be locked in until you're 40.

Higher excesses to reduce premiums

Health funds will now be able to offer cheaper policies with higher excesses. The current cap of $500 per year ($1000 for couples) will be increased to $750 ($1500 for couples). While lower premiums may be a welcome relief for the household budget, a $750 excess may discourage some from using their insurance, particularly if they are likely to face significant out-of-pocket fees from their doctors.

We need a Productivity Commission inquiry

Rising insurance costs are driving many consumers to seek out low-cost policies that offer little in the way of actual cover. 'Basic' tier policies will be required to have the bare minimum of cover: if you buy one of these you will find yourself only able to claim for rehabilitation, psychiatric services and palliative care in a public hospital. These junk policies will continue to be subsidised by the government through the rebate.

CHOICE recently joined with academics, consumer groups and medical associations to urge politicians to launch a Productivity Commission inquiry into the industry. With people dealing with increasing costs and greater confusion, there is growing uncertainty around the value of private health insurance.

"Australia needs the Productivity Commission to take a deep look into private health cover," says Brown. "This is a market that simply isn't working and it's having real impacts on our lives. We'd like to see a bipartisan approach to fixing it. CHOICE has worked with 17 other expert groups and academics to call for a new inquiry and action from Federal Parliament. Australia's health system should put people first, not insurers."